Bearish Divergence Warns Of A Correction
By Colin Twiggs
January 16, 2010 0:15 a.m. ET (4:15 p.m. AET)
The Baltic Dry Index reversed above its falling trendline, indicating that its secondary correction is ending. Twiggs Momemtum Oscillator (13-week) breakout above the recent triangle would confirm. An up-turn in international shipments of bulk commodities is a positive sign for Asian markets and the resources sector.
The Dow is retracing to test support at 10400/10500. Failure would test the lower border of the (bearish) ascending broadening wedge formation. Broader wedges (with a megaphone appearance) are more reliable than narrower (telescope-style) wedges, but downward breakout would signal a correction back to the base of the wedge at 9000. Twiggs Money Flow (21-day) respect of the rising (green) trendline would indicate another advance, while reversal below zero would warn of a correction.
The S&P 500 is testing medium-term resistance at 1150; breakout would signal an advance to the upper trend channel. Bearish divergence on Twiggs Money Flow (13-week), however, warns of a correction and reversal below 1100 would confirm.
The Nasdaq 100 also shows a bearish divergence on Twiggs Money Flow (13-week), warning of a correction. Breakout below the lower trend channel would confirm, while recovery above 1900 would test the upper trend channel.
The TSX Composite again shows a bearish divergence on Twiggs Money Flow (13-week). Breakout below the lower trend channel would signal a correction. Respect of support at 11600 is unlikely, but would indicate an advance to the upper trend channel.
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Another bearish divergence (Twiggs Money Flow 13-week), this time on the FTSE 100 Index, warns of a correction. Breakout below the lower trend channel would confirm. Respect of support at 5400 is unlikely, but would indicate an advance to the upper channel.
The DAX also displays a bearish divergence on Twiggs Money Flow (13-week). Breakout below the lower trend channel would warn of a correction, while respect of support at 5800 would indicate a rally to the upper channel.
Markets have recovered strongly since their March 2009 trough, exceeding the 50 percent retracement level in most cases. With short-term interest rates close to zero the primary up-trend is unlikely to reverse, but expect disappointing earnings in the current reporting season to cause a secondary correction.
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